Readers hoping to buy Becton, Dickinson and Company (NYSE:BDX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Becton Dickinson's shares before the 8th of September in order to be eligible for the dividend, which will be paid on the 30th of September.
The company's upcoming dividend is US$0.87 a share, following on from the last 12 months, when the company distributed a total of US$3.48 per share to shareholders. Last year's total dividend payments show that Becton Dickinson has a trailing yield of 1.4% on the current share price of $252.84. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Becton Dickinson has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Becton Dickinson is paying out an acceptable 52% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Becton Dickinson's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Becton Dickinson, with earnings per share up 7.7% on average over the last five years. Decent historical earnings per share growth suggests Becton Dickinson has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Becton Dickinson has delivered 6.8% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
From a dividend perspective, should investors buy or avoid Becton Dickinson? Earnings per share have been growing modestly and Becton Dickinson paid out a bit over half of its earnings and free cash flow last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So if you want to do more digging on Becton Dickinson, you'll find it worthwhile knowing the risks that this stock faces. For example, Becton Dickinson has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here